Virtue or Vice? A Pedagogical History of the Self-Interest Hypothesis

Quinlivan, Gary, Naugle, John, Journal of Private Enterprise

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from regard to their own interests. We address ourselves, not to their humanity but to their self-love, and never talk of our own necessities but of their advantages. (Smith, Wealth 27)

The self-interest hypothesis, articulated by Adam Smith in the Wealth of Nations, either explicitly or implicitly, has been a key postulate underlying the paradigm of both classical and neoclassical economic models. But there seems to be some dispute, as revealed in principles of economics textbooks, as to what the self-interest hypothesis actually means-are personal ethics and morals part of the equation or, rather as conveyed by Samuelson's best selling principles editions (1948 to the present), does the hypothesis imply that we are selfish, material selfdriven individuals, unconcerned with how our actions impact others?

Some recent principles texts and research in the field of experimental economics lean in the direction of a more value-laden hypothesis. For example, Ekelund and Tollison (10) delineate the premise of "rational self-interest," where Homo economists makes decisions utilizing a cost-benefit analysis that is conditioned by normative constraints (e.g., "personal tastes, values, and social philosophy"). Fehr and Schmidt (1) not only support this finding, but return the hypothesis to its normative roots: "In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis [as defined in Paul Samuelson's principles text] and suggests that many people are strongly motivated by concerns for fairness and reciprocity."

To examine the manifestation of the self-interest hypothesis requires this paper to first explore Adam Smith's topic of self-love in Theory of Moral Sentiments. We then address the pedagogical treatment of the self-interest hypothesis in the two most influential principles of economics textbooks of the 20th Century-Alfred Marshall's Principles of Economics and Paul A. Samuelson's Economics. Principles of Economics, first published in 1890, was the dominant economics text of the preWorld War II period. Economics was first published in 1948 and is currently in its 17th edition. It is in Samuelson's editions that one finds a substantial, if not a misleading, departure from the Classical view of the self-interest hypothesis. Based on his earliest editions, it seems obvious that the intellectual and economic trends of the 1930s and 40s heavily affected Samuelson's treatment of the topic. The final portion of our essay surveys Samuelson's revisions in subsequent editions, through which he substantially softens his description of the selfinterest hypothesis.

The topic of self love and human action

In Wealth of Nations, Smith claims that by employing himself and his capital in the most profitable way, a man contributes to the over-all good of society; the "invisible hand" works its magic. The man neither knows that he is promoting the well-being of society, nor does he know how much he is promoting it. However, it would be misleading to claim a thorough understanding of the role that Adam Smith's self-interest plays in our actions based solely on his depiction of the invisible hand (Smith, Wealth 454-456). A full understanding of Smith's self-interest hypothesis requires a perusal of the moral philosopher's The Theory of Moral Sentiments, where he develops a holistic approach to human action. It is here that Smith specifies the role that self-love plays in shaping our actions.

Smith (Theory 83) makes it quite clear that self-love is not the only driving force guiding one's actions. Indeed, one's action will also rationally take into account the point of view of impartial observers. So in the economic realm, we do not see a reckless pursuit of wealth with disregard to others rights. It is inappropriate to act out of self-interest when that involves injuring our neighbor. …

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